Hedge fund star manager Stanley Druckenmiller believes the U.S. stock market is top-heavy and way overvalued, so he has his eye on Europe and Asia instead.
The founder of Duquesne Capital Management told CNBC
the strong dollar could harm earnings, and the central bank, which has the "the most aggressive monetary policy we've had since the founding of the Federal Reserve in 1913," has helped push equities to lofty levels.
"By historic, fundamental measures, we are extremely high. Stock market to GDP, which I know is one of [Warren] Buffett's favorite measures, is probably the highest it's been in the last hundred years with an eight month exception around the 1999-2000 period," Druckenmiller said.
He is in favor of a hike in interest rates by the Federal Reserve to put a damper on speculation.
"I have positions in the United States, but net-net because of the valuations we talked about and because I'm encouraged by what I'm hearing out of the Fed in terms of them tightening, I'm not all that excited about the U.S."
Druckenmiller pinpointed some cyclical stocks outside of the U.S. as worth paying attention to, particularly in Europe and Japan.
"Both those markets are not only cheaper than the U.S., they have monetary policy that is just on the front end is very, very expansive. . . . The majority of my long exposure is in Japan and Europe, not in the United States."
Druckenmiller said he started buying consumer stocks like Unilever, Pernod Ricard and L'Oreal a few months ago. "But recently we've shifted into more cyclical names like Volkswagen, BMW, Airbus, where you get the tailwind of the euro having gone from 140 to 120, which will give them an earnings push in addition to the lower energy [costs]. And they are great consumer brand names in and of themselves."
According to investment advisor Anthony Mirhaydari of the Edge Pro Investment newsletter, the "smart money" is bailing out of the U.S. stock market as a slide in corporate earnings keeps mounting.
In a guest column for the Fiscal Times
, Mirhaydari also cited a drop in factory activity in the Chicago region, sagging commodity prices, and falling consumer prices – all of which he said could be signs of a recession.
He said Societe Generale strategist Albert Edwards is wary of record highs in stocks in the face of weakness in the economy and in earnings.
"We are at that stage in the cycle where I begin to doubt my own sanity." Edwards said, concluding investors are putting too much faith in the ability of the Fed and other central banks to manage global economic problems.
"Yet both smart money traders and insiders are bailing out of this market at current levels — based on things like commercial equity hedging in the futures market — amid rapid multiple expansion and severe technical overbought signals. For tech insiders, negativity has reached a five-year high." Mirhaydari said.
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